Working Longer Not a Panacea Considering the Number of Low-wage Work Options

In the face of inadequate retirement savings and increasing aging populations, many experts and the popular press offer up a solution: older people should work longer. Praising a Fall 2019 Organisation for Economic Co-operation and Development (OECD) report, “Working Better with Age,” The Economist magazine concludes “employment of older workers is vital if prosperity is to be maintained.”

In this optimistic scenario, elders should retrain to become the economy’s “silver surfers”—“surfing” computer technology—to save prosperity.

As much as we insist that work is a practical solution to the pension and retirement savings crisis and that work at all ages is meaningful and fulfilling, 20.5 percent of workers who are older than age 55 are considered the working poor (in 2020 earning below two-thirds of the U.S. median annual hourly wage, which was $15.29). Not included in this group are the self-employed, incorporated; armed forces; unpaid family workers; and those who retired during the previous year or were not in the labor force for other reasons for part of the year.

Low wage work is often intense, routine and almost always highly-monitored in situations where a person controls neither the pace nor content of their work. The quality of management is poor and interactions with coworkers are restricted. Training and opportunities for advancement are rare. The reward-to-effort ratio is quite low, and the jobs older people have are usually lower status and pay than their career job had been. Downward mobility can lead to a great deal of dissatisfaction. Many older adults have jobs that meet the classic definition of a bad job.

Older, Working and Near Poor

In 2021, approximately 34 million American workers older than age 55 were working full or part time. About 20.5 percent earn below two-thirds of the U.S. median hourly wage for all workers, which is the international definition of a low wage worker.

About one-fifth of older workers—6.9 million workers older than age 55—earn less than the equivalent of $15.29 per hour (two-thirds median wage). As a benchmark, a slightly smaller share, 19 percent, or 11 million younger, prime-age workers between ages 35 and 54 earn less than two-thirds of the hourly median wage. The risk of being in a low paid job as an older worker is much higher for women and nonwhites.

Older women workers are 26 percent at risk of being working poor, whereas older men face only a 15 percent risk of working below 2/3 of the hourly median wage. Non-white and Hispanic older workers face a 27 percent chance of being poor, while the risk is 18 percent for an older white worker. Older non-white women are at the highest risk of being working poor. (See Table 1 and Table A.1 in the Appendix).

Table 1: Number of workers in respective age groups, and share of workers earning below two thirds of the U.S. median hourly wage in 2020, by gender

Source: SCEPA’s calculations, CPS ASEC 2021.

Notes: We compute hourly income for those who do not report it by dividing their annual wage and salary income by annual reported hours. Annual hours are the product of “usual hours worked per week over the last year” times “weeks worked last year.” Wage and salary income indicates each respondent's total pre-tax wage and salary income for the previous calendar year. The median hourly wage is then calculated while taking into account person-level weights.

Job Quality for Older Workers Is Mixed

Many older workers, especially those working for low pay, have jobs that break down health and steal time and provide little in the way of retirement or health benefits. Personal and home healthcare—among the fastest growing occupations and, more importantly, adding the most job growth in the next ten years—pays low wages, has few benefits, is physically difficult and is disproportionately filled with older workers—30.8 percent of home health and personal care workers are older than age 55.

Likewise, in an occupation filled with men, 33.6 percent of janitors are older than age 55, whereas workers older than age 55 make up 22.8 percent of all workers. As a benchmark point of comparison, the share of the labor force that is ages 55 and older is much lower, at 22.8 percent. Of the 11.9 million jobs expected to be added to the economy between 2020 and 2030, 5.3 million, or 45 percent, are projected to be filled by older workers.

Other occupations often filled with older workers that have both high projected job growth and low median wages are:

• Heavy, light and tractor-trailer truck drivers, among whom 31 percent are currently ages 55 and older;
• Passenger vehicle drivers (except bus drivers, transit and intercity), currently 32 percent older workers;
• Maids and housekeeping cleaners, currently 29 percent older workers; and
• Janitors, currently 34 percent older workers.

Table 2: Selected occupations with the most expected job growth over the next decade are low paid and older (share of older workers is over 25 percent; numbers in thousands)

(1) Source: Employment Projections program and Occupational Employment and Wage Statistics program, U.S. Bureau of Labor Statistics, September 2021.

(2) Source: SCEPA’s calculations, CPS ASEC 2021. Workers include self-employed, not incorporated; wage/salary, private; federal government employees; state government employees; and local government employees. Not included are self-employed, incorporated; armed forces; and unpaid family workers; and those who retired during the previous year or were not in the labor force for other reasons for part of the year.

(3) Source: SCEPA’s calculations, CPS ASEC 2020–2021, pooled. Note: Shares of low-wage older workers were only calculated for occupations with above-average shares of older workers and relevant occupations (more than 1 million workers) due to small sample sizes.

Policy Recommendations

Policies to help older low paid workers would create an environment to raise pay. Institutions and rules that raise pay include an increased minimum wage and expanded unionization. Expanding the Earned Income Tax Credit (EITC) would give more income to low wage older workers. Higher pensions and higher Social Security benefits would enable older people in bad jobs to retire.

An immediate practical, short-term solution could be to expand the EITC. In 2021, nearly 1.5 million low-income older workers would have benefited from an expansion of the popular EITC program because they earn wages so low they qualify for federal subsidy. The EITC works as a partial subsidy to low-wage employers because extra income to low-paid workers puts less pressure on employers to raise wages. Research associates at the New School Aida Farmand and Owen Davis’s detailed data analysis confirms a well-known result in the economics literature that although the popular program raises incomes of lower-wage workers through a tax-payer program, it also lowers the wages paid by employers. Therefore, childless and older workers who get reduced or no EITC work side by side with workers who are eligible for the subsidy, which means they are essentially doing the same jobs for lower pay. The older worker is paid the lower wage but is not eligible for the subsidy.

Over the next decade, the share of workers older than age 65 will increase by 50 percent, translating to an additional quarter million workers becoming eligible for the expanded EITC. Here is a big warning: The problem of low pay could be made worse by the EITC. With the EITC expanding we are still left with the problem that the employer is incentivized to create more low paid jobs by the popular and ever-expanding EITC.

The way to counteract the negative side effect of the EITC is to raise minimum wages and reduce the barriers faced by workers to form unions. Brookings researcher Beth Truesdale argues for the wage hike effects of minimum wage legislation and unions, but does not point out the extra benefits of how this would also countervail the pressure to lower wages produced by the EITC.

Appendix

Table A.1: Number of workers in respective age groups and share of workers earning below two thirds of the U.S. median hourly wage in 2020, by race and ethnicity

Source: SCEPA’s calculations, CPS ASEC 2021.

Teresa Ghilarducci, PhD, is the Irene and Bernard L. Schwartz Professor of Economics and Policy Analysis at The New School for Social Research (SCEPA) in New York, NY. Barbara Schuster is a doctoral student in Economics and a Student Fellow at SCEPA.